The UK economy unexpectedly stalled in January, with official figures showing no growth for the month. The flat reading followed a modest expansion of 0.1% in December and fell short of expectations for a stronger start to the year.
According to the Office for National Statistics (ONS), the latest data points to a subdued economic backdrop, with activity across key sectors remaining weak. The figures reflect conditions before the outbreak of conflict in the Middle East, which has since added further uncertainty to the global economic outlook
Emeritus Professor Joe Nellis, economic adviser at MHA, the accountancy and advisory firm, said: "The UK economy flatlined in January, signalling an underwhelming start to the year. But economic expectations have been thrown out the window by events in the Middle East, as threats of supply chain disruption and rising inflation rear their head again.
"Growing inflation will not only hit consumers struggling from the cost-of-living crisis but also has the potential to seriously undermine the Government’s plan for growth. While previously we were expecting to see a number of interest rate cuts by the Bank of England across 2026, we must now face the possibility that rates may actually rise again. The Bank was criticised for acting too slowly as inflation climbed in late 2021 and 2022, so they will want to be on the front foot this time, acting sooner rather than later to curb unwanted price growth.
Emeritus Professor Joe Nellis
"If the Bank holds interest rates for longer — or even raises them — tighter monetary conditions will dampen business investment and act as an obstacle to greater economic growth. Added to this, US tariffs on UK goods are expected to rise to 15%, up from the 10% that the UK Government had previously negotiated, creating further uncertainty and decreasing the competitiveness of UK exports.
"Growth at its current pace will do little to transform the overall fiscal position. Public debt remains high and the Chancellor’s room for manoeuvre remains constrained. This has worrying implications for the struggling labour market. To stall and even reverse the rise in unemployment, the Government needs UK businesses to succeed, creating jobs as they expand.
"This could all be an overreaction — the conflict in the Middle East could stabilise, oil and natural gas prices cool, and the Government can carry on trudging forward as planned. Yet downside risks have dramatically increased in the last two weeks, and the path to economic growth looks a lot more unclear than it previously did."
Among its UK-wide locations, accountancy firm MHA has offices in Aberdeen and Edinburgh.
For more information, visit www.mha.co.uk